Why Interest Rates Are Rising Everywhere—Except Your Savings Account
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Why Interest Rates Are Rising Everywhere—Except Your Savings Account

Many banks continue to offer meagre yields on savings accounts, but it can pay off to shop around

By JOE PINSKER
Tue, Oct 4, 2022 8:44amGrey Clock 4 min

The US Federal Reserve’s campaign to fight inflation by raising interest rates seems to have reached nearly every corner of the economy except one: Americans’ savings accounts.

Mortgage rates doubled this year to nearly 7%, and it has become more expensive to get a car loan or carry a credit-card balance. Yet the interest on savings accounts barely budged. In March 2020, the average annual yield on a standard savings account was 0.1%, according to Bankrate.com. It fell to a pandemic low of 0.06% after Americans’ personal saving rate peaked, and is now up to a wan 0.14%.

US commercial banks held $16.8 trillion in deposits as of June, according to the Federal Deposit Insurance Corp. Much of that vast sum sits in individual checking and savings accounts, earning little interest and losing significant value to inflation. There are savings accounts that yield as much as 3%, for those willing to shop around.

At a hearing on Capitol Hill last month, Rep. Michael San Nicolas (D., Guam) remarked on depositors’ underwhelming returns to the leaders of the nation’s largest banks. “One of the only silver linings in a rising interest rate environment is that savers are supposed to be rewarded for their savings,” he said. “They’re supposed to see the interest that they earn on their savings accounts go up.”

In response, the bank chiefs said that they expected the interest rates on their customers’ deposits to increase in the future, based on the actions of the Fed and their competitors.

The country’s largest banks can keep payouts on savings accounts low because they seem to have plenty of deposits to cover their lending businesses for now and don’t need to attract more by raising interest rates.

Some other banks are offering some of the most generous yields in years, but those still paying out meagre interest can count on customer inertia: We fail to take advantage of better deals, because switching banks seems like a headache.

Were that dynamic to change—that is, if enough consumers took their money elsewhere in search of higher returns—banks would be compelled to raise interest rates or make fewer loans, said Philipp Schnabl, a professor of finance at New York University’s Stern School of Business.

Some banks, particularly online ones, have inched up yields in response to the Fed’s rate increases. The annual interest on an online savings account at Ally Bank rose from 0.5% in May to a chunkier 2.1% last month. As of Sept. 30, according to Bankrate, the highest-yield nationally available, FDIC-insured account was UFB Direct, which was paying out 3.01%.

Greg McBride, Bankrate’s chief financial analyst, advises shopping around. “If you’re looking in the right place, it is the best you’ve seen since 2009,” he said. “If you’re just standing pat at the same place you’ve always had your savings, it probably doesn’t look a whole lot different than 2021.” (Bankrate earns money when customers open accounts using offers on its website.)

Even high-yield savings accounts are a weak buffer from 8.3% year-over-year inflation, but their annualised returns of 2% or 3% still beat a return of 0.01%. The median balance of a transaction account, which includes checking, savings and other accounts, was $5,300 in 2019, according to the Federal Reserve, the latest data available. Receiving 3% interest on that balance, versus 0.01%, would work out to a difference of about $160 a year—not an enormous amount of money, but also not bad compensation for opening a new account, which can typically take about 15 minutes of work.

People with much larger balances stand to gain more, yet those depositors don’t always bother to move their money. Tony Chan, a financial adviser in Orange, Calif., said he recently met with a new client who had about $1.2 million in an account earning 0.01% a year, or roughly $120. Mr. Chan said the money was previously invested in the stock market, but the client sold his holdings last year out of fear and has been too busy to find a good place to put it.

Mr. Chan recommended the client move most of the money into a higher-yield account and the rest into certificates of deposit. He estimates that these switches would yield at least $36,000 in interest annually.

Depositors’ inertia can be strong, to their detriment. In a study published in 2021, researchers analysed the behaviour of customers at five U.K. banks. The average customer stood to gain £123 a year, or about $190 at the time, from moving their money to a higher-yield account, yet the researchers found that switching is “rare” and that even customers with relatively large balances were no more likely to do so.

In a follow-up survey, 66% of respondents said that switching accounts would be worthwhile for them if they gained at least £100 in annual interest. But in one subset the researchers studied, despite the fact that 26% of customers could have gained at least that much by switching, only 3.5% actually switched.

“The biggest reason consumers don’t seem to reoptimise their finances seems to be a belief that it will be a huge hassle,” said Christopher Palmer, a professor of finance at MIT’s Sloan School of Management and a co-author of the study. The study also found that customers tend to overestimate how much of a hassle it actually is, and underestimate how much their interest rate might increase.

Financial advisers consider it prudent for people to cart their money elsewhere if they can find a better offer. Savers can also consider safe high-yield alternatives to bank accounts, such as government I Bonds.

Mr. Chan advises clients to keep about one month’s worth of expenses in a checking account and to seek out a high-yield savings account for cash that they want access to in the next couple of years but don’t need to draw on imminently.



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Anger Does a Lot More Damage to Your Body Than You Realise

We all get mad now and then. But too much anger can cause problems.

By SUMATHI REDDY
Fri, May 24, 2024 3 min

Anger is bad for your health in more ways than you think.

Getting angry doesn’t just hurt our mental health , it’s also damaging to our hearts, brains and gastrointestinal systems, according to doctors and recent research. Of course, it’s a normal emotion that everyone feels—few of us stay serene when a driver cuts us off or a boss makes us stay late. But getting mad too often or for too long can cause problems.

There are ways to keep your anger from doing too much damage. Techniques like meditation can help, as can learning to express your anger in healthier ways.

One recent study looked at anger’s effects on the heart. It found that anger can raise the risk of heart attacks because it impairs the functioning of blood vessels, according to a May study in the Journal of the American Heart Association .

Researchers examined the impact of three different emotions on the heart: anger, anxiety and sadness. One participant group did a task that made them angry, another did a task that made them anxious, while a third did an exercise designed to induce sadness.

The scientists then tested the functioning of the blood vessels in each participant, using a blood pressure cuff to squeeze and release the blood flow in the arm. Those in the angry group had worse blood flow than those in the others; their blood vessels didn’t dilate as much.

“We speculate over time if you’re getting these chronic insults to your arteries because you get angry a lot, that will leave you at risk for having heart disease ,” says Dr. Daichi Shimbo, a professor of medicine at Columbia University and lead author of the study.

Your gastrointestinal system

Doctors are also gaining a better understanding of how anger affects your GI system.

When someone becomes angry, the body produces numerous proteins and hormones that increase inflammation in the body. Chronic inflammation can raise your risk of many diseases.

The body’s sympathetic nervous system—or “fight or flight” system—is also activated, which shunts blood away from the gut to major muscles, says Stephen Lupe, director of behavioural medicine at the Cleveland Clinic’s department of gastroenterology, hepatology and nutrition. This slows down movement in the GI tract, which can lead to problems like constipation.

In addition, the space in between cells in the lining of the intestines opens up, which allows more food and waste to go in those gaps, creating more inflammation that can fuel symptoms such as stomach pain, bloating or constipation.

Your brain

Anger can harm our cognitive functioning, says Joyce Tam, an assistant professor of psychiatry and behavioral sciences at Rush University Medical Center in Chicago. It involves the nerve cells in the prefrontal cortex, the front area of our brain that can affect attention, cognitive control and our ability to regulate emotions.

Anger can trigger the body to release stress hormones into the bloodstream. High levels of stress hormones can damage nerve cells in the brain’s prefrontal cortex and the hippocampus, says Tam.

Damage in the prefrontal cortex can affect decision-making, attention and executive function, she adds.

The hippocampus, meanwhile, is the main part of the brain used in memory. So when neurons are damaged, that can disrupt the ability to learn and retain information, says Tam.

What you can do about it

First, figure out if you’re angry too much or too often. There’s no hard and fast rule. But you may have cause for concern if you’re angry for more days than not, or for large portions of the day, says Antonia Seligowski, an assistant professor of psychiatry at Massachusetts General Hospital and Harvard Medical School, who studies the brain-heart connection.

Getting mad briefly is different than experiencing chronic anger, she says.

“If you have an angry conversation every now and again or you get upset every now and again, that’s within the normal human experience,” she says. “When a negative emotion is prolonged, when you’re really having a lot more of it and maybe more intensely, that’s where it’s bad for your health.”

Try mental-health exercises. Her group is looking at whether mental-health treatments, like certain types of talk therapy or breathing exercises, may also be able to improve some of the physical problems caused by anger.

Other doctors recommend anger-management strategies. Hypnosis, meditation and mindfulness can help, says the Cleveland Clinic’s Lupe. So too can changing the way you respond to anger.

Slow down your reactions. Try to notice how you feel and slow down your response, and then learn to express it. You also want to make sure you’re not suppressing the feeling, as that can backfire and exacerbate the emotion.

Instead of yelling at a family member when you’re angry or slamming something down, say, “I am angry because X, Y and Z, and therefore I don’t feel like eating with you or I need a hug or support,” suggests Lupe.

“Slow the process down,” he says.

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